Conflict dynamics and management in family businesses

People in businesses have disputes.  Disputes change their nature over the life of a business.  On starting the business disputes may arise about the membership of the founding team, the viability of the business idea, capital raising and around the personalities of the founding individuals.  If the business grows then disputes may arise around the use of resources, procurement and work/ family diverging demands.  An established business may have disputes over the level of delegation within the business and within management.  Family members may clash on the level of drawings they should take from the business to support their lifestyles.  A mature business will need to rejuvenate itself through innovation which can cause disputes between family members and with management.  Succession issues also cause disputes.

It is important that a conflict does not create a life of its own.  It is important to avoid escalation and to create opportunity for reconciliation.  This enables win-win outcomes rather than win-lose or lose-lose situations.  With time a conflict may become more entrenched so creating opportunity for win-win scenarios and also making reconciliation harder.  This is particularly relevant in a family business scenario where a festering dispute may split owners and managers with serious implications for the future of the business.

Whilst debate is healthy within a vibrant family business, it should be managed to ensure debate and disagreement do not turn into disputes.  Understanding the nature of a particular conflict helps to delineate it. In turn this helps to solve it.  Delineated disputes are less likely to escalate debates as more specific, factual discussions can be attempted based on the defined parameters of what is disputed.  In addition to delineating a dispute, one should be conscious of four broad approaches to resolving the delineated dispute: domination, accommodation, avoidance, compromise and integration.  Each has their merits for particular situations which a party to a dispute needs to consider when adopting a dispute resolution strategy.

One could dominate by being assertive and even uncooperative.  This creates a win-lose scenario when some parties will not achieve their desired outcomes.  This tactic is likely to create anger, stress and distrust in the mind of the losing party.  It does not support cohesion or harmony.  It is unlikely to constructively develop relationships.  Losing parties are unlikely to give of their best to the business following such an outcome.  The style may be necessary in emergency situations.  It may also work in a more hierarchical business culture although one should be aware of the risks of such a culture: change is led only from the top by people who are often more distant from the customer, the shop floor and the cutting edge of product technology.  As such, the nature of change will often be catch up rather than leading it.  It may also work where one person has a much larger share of business ownership than other family members and so their risk exposure is so much more to the upside and the downside of the outcome.  Even then, the dominant party in the long term has to carry the minority parties with them.

Alternatively, one can accommodate parties in a cooperative manner.  This requires concessions by each party in line with the interests of the other parties that have raised the issue.  This often involves being conciliatory and acknowledging the points of the other side.  This does appease the claimant, but it may strain the attitudes of the accommodating party in the long term who may reach a point of leaving the business or stubbornly (even disproportionately) resisting a demand at some point in a future dispute when their patience has been stretched too far.  Furthermore, too much accommodation may not result in the best outcome for the business as a whole as aspects of the accommodation may forgo business performance.

Disputes may be avoided for as long as possible as they are perceived as intractable.  This avoidance strategy helps parties calm down or lets issues evaporate that are not important in the long run.  However, parties can become frustrated if their concerns are not properly aired.  They may express frustration in non-work situations, such as at home thereby creating tension in their domestic lives.  This becomes particularly significant in a family business setting.  Such submerged disputes may arise again when the family business leadership changes.  Avoidance may also simply defer dealing with a necessary issue relating to optimising the performance of the business.  Studies show avoidance of disputes is more frequent with sibling rivalry, low levels of mutual trust and low levels of satisfaction within the family.  In short, if dispute avoidance as a strategy is being used for these reasons then the family business has some serious structural issues it needs to be aware of.

Compromise is another dispute strategy.  It requires parties to appreciate each party’s position and move towards satisfying it to some degree, but it is a mutual approach unlike accommodation discussed above.  No party is fully satisfied.  Each party feels a sense of loss compared to its claim, but each party appreciates it has received something of value to them in the settlement.  The approach assumes the solution consists of a cake of a fixed shape and size that is to be cut up.  Compromise limits damage and retains relationships but the solution may not be the optimum one for the situation if further thought was given to the problem.

With an integration strategy for dispute resolution, the parties try to achieve a solution that creates a win-win outcome.  It is a strategy that attempts to fully satisfy each party.  It is an active strategy that is more challenging than compromise.  It requires time, creativity, good interpersonal skills and effort by each party.  If there is mutual trust between the parties, there is a good foundation for such an approach.  It requires open dialogue and teamwork.  Consequently, a more hierarchical business ethos may struggle with this approach.

The integration approach to disputes is challenging, but it is more likely to result in longer term business growth and better performance.  Accommodation and compromise are also value creating outcomes that may be easier to achieve although without the full performance benefit a good integration solution might bring.  Accommodation and compromise may result in limiting business performance in order to preserve family harmony.  Dispute avoidance in studies appears to be a problematic strategy as it may suggest a business culture that has little or no open and honest communication and thus risks the business sleepwalking into a major problem.

Dispute resolution is easier said than done.  Yet it is helpful to have conceptual approaches to structure solutions to disputes.  Integration is difficult as a strategy, especially if dispute participants have created a ‘history’ between themselves as part of the dispute.  Whilst intermediaries like a mediator might seem to be an admission of failure to dispute participants, a mediator does bring value.  The mediator can take tension out of dialogue.  The space created by a mediator and the impact of a mediator can increase the chances of an integration solution to the dispute thereby creating greater satisfaction to all sides.  The mediator can only assist towards such a solution if the parties themselves are creative enough to envisage such resolution options, however a mediator may be able to keep the dispute dialogue focused to increase the chance of empathy and creativity that results in an integration solution.

Whilst debate is healthy, disputes have toxicity.  As noted, disputes can have a variety of causes increasing the challenges each stage of the business life cycle brings.  Various strategies can be adopted to solve the disputes.  Each have their merits for particular types of disputes.   

Alternative dispute resolution like mediation can help solve disputes before they reach more formal levels.  My colleagues and I at Nexa Law have experience of dispute resolution including within the family business context.  We can assist with negotiations, mediate or assist with litigation if necessary.  Contact Henry Clarke to discuss your concerns around a family dispute in your family business.